The Surface Transportation Board (STB) has set the third-quarter 2022 RCAF (Rail Cost Adjustment Factor), described as “an index formulated to represent changes in railroad costs incurred by the nation’s largest railroads over a specified period of time.”
The STB is required by law to publish the RCAF on at least a quarterly basis. Each quarter, the Association of American Railroads computes three types of RCAF figures and submits those figures to the Board for approval. The RCAF (Unadjusted) is described as “an index reflecting cost changes experienced by the railroad industry, without reference to changes in rail productivity. The RCAF (Adjusted) is an index that reflects national average productivity changes as originally developed and applied by STB predecessor Interstate Commerce Commission, the calculation of which is currently based on a five-year moving average. The RCAF-5 is an index that also reflects national average productivity changes; however, those productivity changes are calculated as if a five-year moving average had been applied consistently from the productivity adjustment’s inception in 1989.”
The Board, in Docket No. EP 290 (Sub-No. 5), downloadable below, “finds that the third quarter 2022 RCAF (Unadjusted) is 1.250, RCAF (Adjusted) is 0.512, and RCAF-5 is 0.487. The index of railroad input prices, RCAF (Unadjusted), RCAF (Adjusted), and RCAF-5 for the third quarter of 2022 are shown in Table A (below). Table B shows the first quarter 2022 index and the RCAF calculated on both an actual and a forecasted basis. The difference between the actual calculation and the forecasted calculation is “the forecast error adjustment.”
BACKGROUND by Capitol Hill Contributing Editor Frank N. Wilner
The 1980 Staggers Rail Act provided that in place of general rate increases, which were phased out, STB predecessor Interstate Commerce Commission (ICC) was to adopt a quarterly Rail Cost Adjustment Factor (RCAF)—an index measuring cost deviations from an initial base period for such items as fuel, labor and materials purchased by Class I railroads.
The STB subsequently published three separate RCAF indexes—an unadjusted RCAF to reflect cost changes without reference to changes in productivity; an adjusted RCAF index reflecting national average productivity improvements; and an RCAF-5 based on a five-year moving average dating to the RCAF’s 1989 inception. Rate increases not exceeding the quarterly increase in the RCAF are immune from regulatory challenge. The RCAF typically is incorporated into rail contracts as an escalation factor.
Additional revisions, made on advice of a congressionally created Railroad Accounting Principles Board, incorporated into the RCAF productivity improvements, making it an output cost index rather than an input cost index.